On November 30, 2017, Calla Resources Ltd. borrowed $120,000 from a bank by sign

Question

On November 30, 2017, Calla Resources Ltd. borrowed $120,000 from a bank by signing a four-year instalment note bearing interest at 10%. The terms of the note require equal payments each year on November 30, starting November 30, 2018. Use TABLE 14A.2

Required:
1. Calculate the size of each instalment payment. (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.)

2. Complete an instalment note amortization schedule for this note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

3. Present the journal entries that Calla would make to record accrued interest as of December 31, 2017 (the end of the annual reporting period), and the first payment on the note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

1.Record the accrued interest on the installment note payable.

2.Record the first payment made on installment note.

4. Now assume that the note does not require equal payments but does require four payments that include accrued interest and an equal amount of principal in each payment. Complete an instalment note amortization schedule for this note. Present the journal entries that Calla would make to record accrued interest as of December 31, 2017 (the end of the annual reporting period), and the first payment on the note. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

1.Record the accrued interest on the installment note payable.

2.Record the first payment made on installment note.

Payment

Explanation / Answer

Part 1

Calculation of Size of installment

Outflow = Inflow

Let the installment amount is X

X*Present Value Of Annuity Factor (10%, 4) = $120,000

X*3.1698 = $120,000

X = $ 37857

Part 2

Part 3

Journal Entries

Dec 31 2017 Dr. Interest A/c ...................1000

Cr. Accrued Interest A/c......1000

Nov 30 2018 Dr. Accrued Interest A/c.........1000

Dr, Interest A/c.......................11000

Cr. Debit Notes Payable A/c...12000

Nov 30 2018 Dr. Debit Notes Payable A/c...37857

Cr. Cash A/c..........................37857

Part 4

60000

Journal Entries

Dec 31 2017 Dr. Interest A/c ...................1000

Cr. Accrued Interest A/c......1000

Nov 30 2018 Dr. Accrued Interest A/c.........1000

Dr, Interest A/c.......................11000

Cr. Debit Notes Payable A/c...12000

Nov 30 2018 Dr. Debit Notes Payable A/c...42000

Cr. Cash A/c..........................42000

Working Note:

Calculation of Cash Payment Every year

Principal Repayment Every year = 120000/4

= 30000

Total Amount repaid

Period Ending Begining Balance Interest Expenses Debit Notes Payable Credit Cash Ending Balance Nov 30/18 120,000 12,000 132,000 37,857 94,143 Nov 30/19 94,143 9,414 103,557 37,857 65,700 Nov 30/20 65700 6570 72270 37857 34413 nov 30/21 34413 3444 (Rounded Off) 37857 37857 0 Total 31428 151428

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